Non-Owned Aircraft Insurance: What You Need to Know

Most of our clients do not have any role in designing or building airplanes, maintaining or servicing planes, or operating planes. Nevertheless, using a non-owned plane for business purposes creates liability exposure. In the event of an accident while using the non-owned aircraft, injured parties could attempt to pin responsibility on the aircraft user, despite your company’s tenuous involvement in the actual flight operations. Even if such a claim is unlikely to hold up, the costs associated with mounting a defense can add up quickly.

A non-owned aircraft liability insurance policy solves this problem. It not only provides third-party liability coverage, but it also ensures the insurer will provide a defense—even if the claim ultimately proves to be groundless.

Think of non-owned aircraft liability coverage as an optional, supplemental insurance policy for companies that use non-owned aircraft. It’s an excess liability that sits on top of the liability coverage provided by the aircraft owner’s policy.

However, before your company purchases a non-owned aircraft liability policy, you can take important steps to identify, analyze, and transfer its risk.

Scrutinize the Certificate of Insurance

When your company uses a non-owned aircraft, the primary source of insurance coverage will be the aircraft owner’s policy. It’s important to request the certificate of insurance (COI) and review it carefully. The COI will contain essential details about the airplane owner’s coverage. Additionally, the COI should clearly provide an “additional insured” provision and a “waiver of subrogation” in favor of the company using the plane. This is a standard request when using a non-owned aircraft.

Below is a checklist to use when reviewing the COI:

• Is the COI showing the current policy term?
• Is the insurance company a recognized provider of this type of insurance, meeting minimum acceptable financial ratings?
• Does the liability limit meet the company’s minimum requirements?
• Is the liability limit appropriate for the type of aircraft and operation in question?
• Does the liability limit contain a passenger sublimit?
• Is the name of the certificate holder written correctly?
• Does the COI provide an additional insured provision?
• Does the COI provide a waiver of subrogation?

Your broker can help you review the COI. If it comes up short in one or more of these areas, make sure it’s corrected before using the aircraft. If the aircraft owner is unwilling or unable to correct any deficiencies, you should carefully consider the next steps—which may include choosing another operator.

For example, a missing “additional insured” provision creates a two-fold problem: First, the company using the plane (your company) has no liability coverage. Secondly, you’ll likely be unable to purchase a non-owned aircraft liability policy without the provision. In this instance, you should consider not using this operator.

Explore Non-Owned Aircraft Insurance

As an additional insured on the aircraft owner’s policy, it is impossible to know with certainty how much of the owner’s liability limit will ultimately be available to your company in the event of a claim. It would certainly not be the full limit, as this one limit is being shared among several insureds. For additional peace of mind, you can purchase a non-owned aircraft liability policy, which would provide a supplemental, contingent limit exclusively for the named insured.

With an acceptable COI in hand, you are ready to work with your broker to complete a non-owned aircraft liability insurance application and approach prospective insurers for quotes. In addition to the COIs from the aircraft owner(s), pilot experience forms will also be needed in some cases.

Underwriters will focus on the following areas:

• Type of aircraft
• Use of aircraft
• Estimated flight hours
• Underlying insurance
• Pilots
• Passenger profile, e.g., number of passengers, employees versus guests
• Location of flight operations
• Carrier appetite can vary considerably based on answers to these questions.

Generally, carrier appetite and limit availability will be very low for small aircraft operated by a single, non-professional pilot, as the aircraft owner’s insurance likely has very low primary liability limits. Conversely, non-owned coverage is readily available for professionally crewed business jets with high primary liability limits.

Special Considerations for Non-Owned Aircraft Insurance Coverage

When it comes to non-owned aircraft liability coverage, there are situations that require extra attention and customization to make sure you’re fully protected.

Aircraft dry leases: A non-exclusive dry lease is a common tool for corporate transportation. While this is technically a non-owned aircraft, most non-owned policies exclude aircraft subject to a long-term lease agreement, usually 12 months or longer. However, insurers can write this coverage back via endorsement following a full underwriting review of the risks.

Fractionally owned aircraft: Like dry leases, fractionally owned aircraft fall outside of the policy definition of non-owned aircraft. However, insurers can schedule fractionally owned aircraft on a non-owned aircraft liability policy via an endorsement following a full underwriting review of the risks.

Unmanned aircraft systems (UAS or drones): Using non-owned UAS (such as an employee-owned drone or hiring a third-party drone operator) creates a similar exposure for companies. Provided similar risk management steps are completed, as noted above, this exposure can be covered by a stand-alone non-owned UAS policy or by an endorsement to an existing non-owned aircraft liability policy. It’s worth noting that primary UAS limits are typically lower, and as a result, coverage limits for non-owned UAS tend to follow suit.

Market Challenges and Outlook

In recent years, available capacity for non-owned aircraft liability insurance has contracted, particularly for the more challenging exposures. Those insurers that have continued to actively quote non-owned aircraft liability coverage have become more selective, increased premiums, reduced liability limits, and narrowed the scope of coverage. Under these circumstances, demonstrating a solid risk management foundation is key to a successful placement.

Discuss your organization’s use of aircraft with your insurance broker to determine appropriate next steps for managing this risk. Your broker can help you determine if a non-owned aircraft liability policy is right for your organization.